010. The Disability Tax Credit: What It Is, Who Qualifies, and Why It Matters

Episode Summary:

In this episode of We Advocate, Gordon and Annie VanderLeek unpack one of the most misunderstood, and increasingly important, disability supports in Canada: the Disability Tax Credit (DTC).

Often dismissed as “just a small tax break,” the DTC is actually a gateway benefit that unlocks access to other critical federal and provincial programs. With upcoming changes to Alberta disability supports and the introduction of the Canada Disability Benefit, understanding the DTC has never been more important.

This episode provides a practical, plain-language overview of how the Disability Tax Credit works, who qualifies, and why families should prioritize applying, even if there is little or no immediate tax benefit.

Why this matters:

• Clears up harmful myths about who qualifies
• Explains the real value of the DTC beyond taxes
• Helps families avoid missed opportunities and unnecessary stress
• Encourages proactive planning instead of crisis-driven applications

Key Takeaways:

• The Disability Tax Credit is a gateway benefit, not just a tax break
• You can qualify even if you pay little or no tax
• Eligibility is based on functional limitations, not diagnoses
• Mental health and cognitive impairments now have clearer pathways to approval
• There are four eligibility routes, not just one
• The application requires accurate, honest storytelling, not optimism
• Strong documentation and record-keeping can make or break an application
• Having the DTC in place protects future access to:
  • RDSPs
  • Canada Disability Benefit
  • Long-term estate and caregiving plans

Memorable lines:

“The Disability Tax Credit isn’t about the tax, it’s about what it unlocks.”

“If you wait until you need the Disability Tax Credit, you’re already behind.”

“CRA isn’t asking what your diagnosis is, they’re asking how you live your life.”

Resources & Links:

Canada Revenue Agency – Disability Tax Credit Overview
https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit.html

Disability Tax Credit Application (Form T2201)
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2201.html

Canada Disability Benefit (Federal Program Info)
https://www.canada.ca/en/employment-social-development/programs/disabilities-benefits.html

Registered Disability Savings Plan (RDSP)
https://www.canada.ca/en/employment-social-development/programs/disability/savings.html

Alberta Disability Supports (AISH / ADAP context)
https://www.alberta.ca/aish.aspx

Transcript

Welcome back to the We Advocate podcast. My name is Gordon Vanderleek, I'm the founder and managing lawyer of Vanderleek Law. And I get to podcast with my co-host. Annie, welcome to the podcast.

Yeah, thanks.

Today we're diving into the interesting topic — I think an increasingly crucial topic — in terms of disability supports in Canada. We're talking about the Disability Tax Credit. And sometimes when you deal with government, you deal with acronyms. So we may sometimes refer to this as the DTC, Disability Tax Credit.

Hi, everyone. Yeah, the Disability Tax Credit is often misunderstood as just a small tax break. But really, it's a gateway benefit, especially with some of the changes with AISH and now with the Canada Disability Benefit being offered through the federal government. It becomes a much more important thing to have in place.

Yeah, and what we're finding, even from a planning perspective, when I'm sitting down with families and talking about estate planning, this is more and more an important part of that conversation. Because it is that — as you put it anyway — I think that's a good way to put it — a gateway benefit. It opens the gates to lots of other programs, and the federal government tends to attach eligibility to the Disability Tax Credit.

Because, of course, that's their federal program. All the provinces have their own different eligibility criteria. For example, in AISH, or in Alberta, we have the H Program and the new ADAP program coming up. But this is the federal program, so they have their own rules.

And according to your loved ones who have a long-term disability, we thought we'd get into a few more details. And actually, in this case, we're going to get into some of the basics and do this over two sessions because there's a lot to cover here.

Yeah, so let's start with the basics. The Disability Tax Credit is a non-refundable tax credit. So that means it reduces the taxes that you owe. But lots of times people think, well, the person who it's for isn't making very much money and is not paying any tax — especially if it's AISH, which is non-taxable — then you won't necessarily get a large refund. But let's talk a little bit about that.

So as we've referenced earlier, really the value is the doors that it opens, right? That it's this gateway. By having the Disability Tax Credit, even if you didn't save a dollar on taxes in filing your annual tax returns with the government, my view is it's essential to have it in place. And especially from an estate planning perspective, if you're looking at what happens if you pass away and what about the caregivers that are going to step in to look after your loved one — they need to know that it's in place as well. So that's really beyond the tax — the real value of eligibility for the program.

Well, and I would say some of it would be that people didn't necessarily know about the Disability Tax Credit prior to AISH now saying that people need to apply for the Canada Disability Benefit. And if they don't have the Disability Tax Credit, all of a sudden they have to apply for that.

Have you seen — on that point, I mean on a practical basis — have you seen that in your practice, that you've had to be helping more people now because of these programs? You have to educate people more on the Disability Tax Credit and fill out applications or help people with that?

Absolutely. And it's because they're sort of pushing that they have to do the Disability Tax Credit because they want you to be able to apply. And of course, that would be the prerequisite to get the Canada Disability Benefit. So I think it's overwhelming for people because all of a sudden, maybe they didn't even know about it, and now they're needing to do two applications — but starting with the Disability Tax Credit.

Yeah, so let's talk a little bit about who qualifies. As you can imagine with this, it's not uncommon in the disability sector to say there's going to be a medical test. So let's break down that eligibility.

Now, before we do that, it's just interesting to remember that it's part of the Canada Revenue Agency that is looking at these applications. It's, I think, literally a separate building — I think it's close to Ottawa, just in Hull on the outskirts of Ottawa. But you're applying to the Canada Revenue Agency, right? So these are the tax people, but they're having to evaluate the information, including the medical test.

And we're looking at functional limitations. So Annie, maybe take us through kind of like if you're helping a family go through this application process — what are the key things you have to highlight in that application to ensure their success in terms of their day-to-day activities?

Yeah, so the four major pathways:
 The first one is that you're markedly restricted, and we'll explain a little bit what all of those mean, but at least in one basic activity of daily living.
 Significantly restricted is where there's a cumulative effect of multiple impairments.
 Life-sustaining therapy — so someone who has type 1 diabetes, or is on dialysis — those would be pretty major and they would automatically be qualified.
 And a severe mental function impairment.

With some of the changes that happened, the diabetes one was something that now people are qualified right away. Before, they needed to prove how much time they were spending to manage their diabetes. The mental functioning too is a big change in the last number of years. We have a better Disability Tax Credit application at this point, which gives more detail to how you're affected by that.

I do a lot of applications where mental functioning is the main issue. And now it's just more open to mental health issues getting a yes compared to what it was.

Right. Compared to what it was. I think the application now — you can correct me — I think it's like 14 pages?

I think it's 16. It's quite large.

And so doctors don't always like that. We'll have a reference in the show notes to the application, but if you Google it, you'll come across the application form. The point being, it's much enhanced. There are more pages than there used to be. If you go back far enough, they weren't asking as many questions.

So I think that's generally a good thing because it helps tell the story about the details of the impairments on day-to-day living. And that's really the test of the Disability Tax Credit. Are you struggling with things you need to do day-to-day? It's not cognitive. It's not your ability to work. It's daily functioning. Can you do the things you might otherwise be able to do?

And so let's break down those four categories.

There is a specific definition with regard to markedly restricted. That means the person must be unable to, or takes at least three times longer than someone without the impairment to perform an activity of daily living 90% of the time for at least 12 months.

So as you listen to that, my point is that's a pretty specific formula or test that the government — the Canada Revenue Agency — is applying. You have to produce evidence that it's not just, well, I had this problem last month. It's over the last 12 months. It has to affect you most of the time. They put a 90% criterion on there. It doesn't have to be 100%, but it's not occasional. And it's taking you three times longer than somebody without the impairment.

So you have to hit each of those points to qualify as markedly restricted.

Right. Which is the reason why having a better form or application helps to show that. The old form didn't give a lot of detail, and this one does.

But the activities have to be basic. They tie them into categories: feeding, dressing, walking, speaking, hearing, eliminating, vision, or mental functions.

So you may just have one of those areas checked off. Every situation is different.

And I guess that's part of the challenge of your job — to make sure you tell that story and dig into the details. You have to go into the nuances — not just “I'm struggling.” You really have to break down feeding, dressing, walking, speaking — where is the limitation?

And what's interesting is a lot of people don't want to focus on the negative. Parents want to highlight that their child is doing great. Or someone says, “I can still walk, I can still feed myself.” But the question is, how long does it take? If it takes you three times longer and it's consistent, then you may meet the test.

Right. So you have to be careful about assumptions and positive framing. Positive outlook is an attribute, but you have to focus on the functional reality.

And with feeding, would you know what to eat? Did it take time to prepare? Do you understand what you need? How much prompting or assistance do you need? Sometimes people can eat, but could they do everything required to sustain life?

Yeah. Or it takes them much longer, or they need assistance. And if you stripped that away, they wouldn't be able to do it.

Correct.

So let's move to the second one — significantly restricted.

Yeah. This one sometimes helps people qualify because it's not that they're markedly restricted in one area, but there's a combined effect of multiple moderate impairments that make daily life substantially limited.

So maybe feeding is one, mental functioning is another, and hearing is another. They might be able to do things, but maybe only 60% of the time instead of 90%.

So again, it opens the door a bit. They struggle less in each area, but across more areas.

Mental functioning is a big category. I do a lot of applications here — memory, problem solving, planning, social functioning, regulating emotions. Many people fall into this category even if none of the others apply.

Maybe it's depression, ADHD, schizophrenia, bipolar disorder. Before, it was harder to get a yes. Now, if we can show how it affects daily life, mental functioning alone can qualify.

Yeah. And sometimes there's resistance from clinicians filling out the form. They may think, “Just take medication, you'll be fine.” Mental functioning is less understood, even by professionals. Sometimes the form is filled out aspirationally — what should be — not reality.

Yeah, and that's why we often want backup documentation. The application is more fulsome, but we want medical records, reports, and evidence over that 12-month period or longer to support it.

So let's move to the fourth area — life-sustaining therapy.

Yeah. Diabetes or dialysis are the main ones. Those are generally automatic now. It used to be that you had to prove how many hours you spent managing it. That changed after election promises — now it's presumed to meet the threshold.

If you need therapy to stay alive and spend significant time on it weekly, that can qualify you.

So to recap: markedly restricted, significantly restricted, mental functioning, and life-sustaining therapy.

Now let's talk about the process.

Yeah. The application is Form T2201 and has two parts. Part A is filled out by the applicant and determines who receives the credit. If a parent or caregiver covers costs, that can be indicated.

Part B is completed by the medical practitioner.

Some people complete it themselves, but often it's family members, caregivers, or guardians.

Right. And sometimes things go wrong. The wrong practitioner fills it out, or misunderstands the criteria. Advocacy is often required to ensure the form is completed properly.

And now, nurse practitioners, occupational therapists, psychologists, and other specialists can complete the form — which helps because they often spend more time with the person.

Consistency over time is key.

So some practical tips?

Focus on functional limitations, not just diagnosis. Talk about frequency, duration, and consistency. Keep copies of everything. Always keep copies.

CRA sometimes loses documents. Appeals may require resubmission. Record-keeping is critical.

And don't throw away old documentation. School supports, workplace accommodations — keep them. You never know when you'll need them.

Also, sometimes old documentation helps establish long-term disability, even if it's 10 years old. That can help with retroactive claims.

Exactly.

Well, this has been a great overview. We knew this would take time, so we split it into two parts. In the next episode, we'll talk more about the programs it connects to — like the RDSP, Canada Disability Benefit, and others.

Thanks for listening, and keep advocating. Join us for part two.